Bicycle-makers ride high on surging oil prices

Ralph Jennings

6 Min Read

TAIPEI (Reuters) - The row of gleaming bicycles being assembled on the factory floor of Giant Manufacturing, one of the world’s biggest bicycle-makers, will soon hit streets from Seattle to Sydney, Amsterdam and even Beijing.

Rising petrol prices, growing awareness of environmental issues and the popularity of cycling as a recreation sport has fuelled a surge in demand for bicycles around the world.

Giant, the Taipei-based maker of international bicycle brands such as Boulder, Yukon and Iguana, is reaping the profits. The company, which produced 5.5 million bikes in 2007, is expected to pull in $1 billion in sales this year, up 10 percent, it says.

Giant’s story is typical of the global $61 billion bicycle industry, which is enjoying unprecedented growth as cycling becomes a major recreation sport and lifestyle option in many Western countries.

“There is a general renaissance and interest in bikes,” said Jack Oortwijn, editor-in-chief of the monthly magazine Bike Europe. “Parts suppliers are struggling to keep up.”

China leads the world in the number of bikes produced per year with about 73 million units of a total 100 million annually, according to the Earth Policy Institute, an environmental information network based in the United States.

The rest comes largely from Taiwan, Canada, Russia, Ukraine and the European Union. Taiwan makes about 6 million bikes per year and they sell for an average domestic wholesale price of $222 per unit, according to a local manufacturing association.

Bicycle sales have over the past five years increased by 14.6 percent among European Union nations, which buy 70 percent of the world’s bikes, according to Bike Europe. In the United States, sales have increased by almost 9 percent in the same time period.

METAL PRICES HURT MARGINS

But it’s not all good news.

Price hikes in metals -- especially steel, aluminum and chrome which are the main metals used in bikes -- have eaten into profits and pushed up prices as manufacturers seek to maintain margins.

The key to greater margins lies with high-end light bikes using carbon frames, made from carbon fiber material, which earn higher margins per unit because they sell on brand cachet as well as quality, offsetting steep raw materials costs.

“If you want to compete, you’ve got to raise efficiency,” said Giant’s president Tony Lo.

Giant also manufactures battery powered bikes which are popular in China where the company operates three factories.

Battery-powered bikes are a big hit as China’s economic boom puts money in the pockets of even the poorest factory workers who almost immediately upgrade their bikes.

Chinese consumers snapped up more than 20 million battery powered bikes in 2006. The bikes, powered by a 36 or 48 volt battery can travel at around 25-km an hour. They sell for around 3000 yuan ($430) a unit.

At Giant’s cross-town rival Merida Industry, an executive said he expected company profits to be flat this year due to rising material costs.

But Merida forecasts that revenue will rise 5 to 10 percent this year from 2007, roughly meeting analyst expectations, on growing demand for battery-powered bikes in China and mountain bikes in sports-driven markets such as in the United States.

Taiwan competes with France, Germany and Italy in the high-end bike arena.

In the push to increase margins and win market share, Giant and its main competitors Finland’s Cycle Europe, and the U.S.-based Trek and Specialized are racing to develop the world’s lightest bike.

Giant owns the lightest bike title with a bike that weighs 6-kilograms, 20 percent lighter than earlier models, according to cycling experts. Called the ‘TCR Advanced’, these carbon-fiber ultra-light bikes sell for about $7,100 each.

But Giant, with its competitors close on its heels, is working hard to develop an even lighter bike.

CYCLING TAKES OFF

With petrol prices at record highs of $126 per barrel and some analysts predicting it could hit the $200 mark, it’s no surprise that bicycles are becoming a popular form of transport, especially among a growing breed of fitness fanatics.

“Driving cars is expensive nowadays. Oil prices are going to remain at a high level,” said Fabian Kuster, a spokesman for the European Cyclists’ Association in Brussels.

For short-distance commutes, he added, “a bike is faster in the city and takes up less space.”

Paris, Barcelona and other cities in Europe have introduced bicycle loan programs that allow commuters to pick up bicycles at official stands outside train stations. All that is needed is a swipe of a credit card to guarantee the bike will be returned.

Users return the bikes to the stands and with another swipe of their credit card get their deposit back minus a small users fee. There are about 20,000 such bicycles at around 1,450 stands across Paris alone.

“With bikes you don’t need any gas, so there’s a new awareness of cycling,” said Giant’s president Lo, 60, who rides 80-km to-and-from work every day on the back of his bike.

Europeans increasingly pedal to work on bike-friendly streets planned by city governments that encourage cycling, while a growing pool of commuters in China use battery bikes and Americans ride mainly for sport or to work off calories.

“I have been racing mountain bikes for a long time and would like to think that cyclists like myself increase bicycle sales,” said Steve Tam, an avid cyclist in Redding, California, where riding bikes on the weekends is a favorite recreation sport.

Would-be riders in newly developed regions such as Taiwan still see bikes as a symbol of a poor past, while riders complain worldwide of inclement weather, unsafe traffic and rampant theft despite the best locks.

Still, cycling is cost effective and often relatively fast on Taipei’s congested roads.

“I’ve got just a 10-minute ride, and you don’t need to spend any money on gas,” said Hu Li-wei, a 21-year-old Taipei university student who rides to lectures every day elbow-to-elbow with mopeds and buses.